Sun Microsystems Reportedly Rejects Takeover Bid by IBM.

The board of directors of Sun Microsystems, a leading maker of servers, software and a service provider, did not have one opinion regarding International Business Machines’ bid to acquire Sun, but rejected the offering on Saturday. Still, since Sun’s stock is now very weak, it may still consider a take over proposal.

According to the Wall Street Journal, Sun's board is split over whether to do the deal, with a fraction led by Sun's chairman and co-founder, Scott McNealy, opposing the transaction and a group led by chief executive Jonathan Schwartz in favor. The deal may potentially allow Sun to get more funds on research and development and create its new technologies that the company cannot afford today. But it is also pretty clear that the take over by IBM will dramatically change Sun and the company and its employees will become parts of larger groups at the Big Blue.

IBM needs Sun to get very strong positions in cloud computing business as well as software and services. However, many of IBM’s and Sun’s product lines overlap, which will inevitably raise concerns of antitrust regulators. Moreover, certain products of Sun Microsystems, such as its own SPARC microprocessors, will hardly be developed further once IBM acquires the company.

Sun, which market capitalization reached $200 billion during the Internet bubble, now has capitalization of $4.89 billion and acquisition by IBM for around $7 billion would please investors. Moreover, the fact that the information regarding the talks leaked to mass media, will cause both customers and investors to question Sun’s future.

“Sun’s board is going to have a lot of explaining to do if they turned down an offer of $9.40 a share. […] The public disclosure of the talks with IBM casts uncertainty among customers about Sun's future,” said Toni Sacconaghi, an analyst with Sanford C. Bernstein.